To some people, the stock market seems like a mystery and a scary one, at that. However, stock market operations are really no big secret and once an individual understands how the market works, the unease disappears. Think of the stock market as an auction filled with intermediary parties who match sellers and buyers of stock.

Once a company goes public, its shares of stock are purchased and sold on stock markets. The New York Stock Exchange (NYSE) is the largest public stock market. The people you see running around on the market floor, waving their hands and writing down notes, are specialists. These are the folks who match stock purchasers with stock sellers.

Despite its appearance of chaos, the stock market actually uses a very organized and methodical system for trading. A stock price is determined by the rules of supply and demand within an auction environment. Though the specialists match the sellers with the buyers, the shares of stock are always sold to the individual with the highest bid.

The American Stock Exchange operates in a manner similar to the NYSE. There are also regional stock exchanges in Chicago, Cincinnati, Boston, Philadelphia, and Los Angeles. Small companies may be listed only on the regional exchanges, while large companies may be listed on both regional and national stock markets.

The Nasdaq stock market differs from each of these because it is totally electronic. Nasdaq stock trading is conducted over a computerized network linking brokerage firms and investment banks that are geographically dispersed. Entities called market makers maintain inventories of stocks listed on the Nasdaq so investors can always locate shares to purchase or sell. Each market has a set of sophisticated regulations intended to protect investors, permitting them to get the best share prices possible, whether they are selling or buying.

Keep learning more:

1. Municipal Bonds 101: An Introduction to Municipal Bonds


2. Inflation is the Biggest Risk of Bond Investing


3. Bonds 101: How to Invest in Bonds


4. What Are Exchange Traded Funds?

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